The Sixteenth Amendment is one of the most thoroughly studied texts in U.S. federal tax law—economists, historians, and luminaries of constitutional law and taxation have all sliced and diced its meaning for more than a century. Making an original discovery about the historical meaning of the Amendment has consequently taken on the dimensions of a mythic quest, like discovering an Eleventh Commandment or the secret dryer compartment containing all those lost socks.
Remarkably, this is exactly what John R. Brooks and David Gamage accomplish in their timely forthcoming article, The Original Meaning of the Sixteenth Amendment. Brooks and Gamage marshal a wide variety of evidence, including new historical evidence on the technical meaning of “income,” to argue that the income taxable without apportionment under the Sixteenth Amendment includes unrealized gains. This has huge implications for policy, given that many current and proposed taxes are imposed on unrealized gains, including some of the most important recommendations to tax the very rich. Brooks and Gamage’s work is especially timely given that the Supreme Court will rule on Moore v. United States in the next month or so, possibly deciding the constitutionality of taxes on unrealized capital gains—although Brooks and Gamage’s contribution goes far beyond the current case, especially if it is decided on narrow grounds.
Brooks and Gamage’s article is remarkably thorough in its examination of the historical context and public meaning of the Sixteenth Amendment at the time of its ratification. They make two main contributions. First is a purposivist analysis of the meaning of the Sixteenth Amendment, arguing that it was understood as a specific measure to overrule Pollock v. Farmers’ Loan and Trust Co. and should be interpreted as such. Second, the authors present extensive contemporary textual evidence on the meaning of the term “income,” including evidence so far neglected in constitutional debates.
The article’s exposition of the purpose of the Sixteenth Amendment is thorough and compelling, although presumably less so to textualists (obviously an important interpretive bloc on the current Supreme Court). But the real coup de maître comes in the second contribution. Most significantly, the authors unearth new historical evidence showing that varieties of income taxation in effect at the time the Sixteenth Amendment was ratified included elements of “mark-to-market” taxation of unrealized gains. For example, they show that the federal Corporate Excise Tax of 1909 required including the appreciation in value of unsold property in income if it was recorded on a corporation’s books. They also show that accounting standards in place at the time of the Sixteenth Amendment included unrealized gains in income. Taken together, the evidence suggests that the contemporary technical meaning of “income” in the context of taxation did include unrealized gains.
Brooks and Gamage take a sophisticated interpretive position here, and they acknowledge doubters on the other side. Perhaps most prominently, a team of corpus linguists who have analyzed contemporary language usage at the time of the Sixteenth Amendment’s passage conclude that “income” was commonly understood to require realization. Brooks and Gamage have some points of disagreement with the corpus linguistic analysis. Moreover, they argue that it is beside the point—that the ordinary meaning of “income” is not relevant when we have good evidence of the technical meaning of “income,” which as used in the Sixteenth Amendment is a tax law term of art.
Constitutional and textual interpretation are subtle, and cases sufficiently ambiguous to make their way to the Supreme Court do not admit of easy answers. Slam dunk arguments on these matters are therefore almost impossible, and there are grounds on which reasonable interpreters could disagree. But Brooks and Gamage’s article is as persuasive and original as I have seen on these issues, and makes interpretive contributions that will resonate for decades to come.
